Trends show Series A-shortage intensifying

A more select group of entrepreneurs is taking a larger slice of the venture capital pie these days, underscoring the need for seed capital. That’s especially true in St. Louis, where a gap between early-stage money and more serious venture capital is noticeable.

According to PitchBook, a Seattle-based venture capital database, venture capitalists invested an all-time high $15 billion worldwide in the first quarter of 2014. But fewer startups — roughly 1,350 companies — were getting funded.

Essentially, venture capital deals got bulkier, with median deal size doubling from $2.1 million in the third quarter of 2013 to $4 million in the first quarter of 2014.

In St. Louis, where more startup companies are being founded than ever before, the trend places a premium on traditional seed capital sources such as the St. Louis Arch Angels and Cultivation Capital.

Cultivation’s goal is to bridge the gap between seed and Series A capital, General Partner Brian Matthews said. He said he expects Cultivation to invest $4.5 million in 2014. The Arch Angels expect to invest $10 million this year.

Jay DeLong, the Regional Chamber’s vice president for new ventures and capital formation, said it’s difficult for St. Louis to solely support the growing startup community because it doesn’t have a lot of pre-Series A venture firms.

“That means more startups are dependent on funds like Cultivation Capital or the Arch Angels,” he said.

Aaron Mottern, co-founder of Hey Let’s Train, a St. Louis startup that’s developed an online tool for physical therapists to provide telerehabilitation, said if entrepreneurs can’t find funding in St. Louis, they’ll look outside the region, which often leads to their startup being relocated.

“It can be a major obstacle for startups,” Mottern said. “St. Louis startups are being recruited to leave the city just like St. Louis is recruiting other startups in other cities to come to St. Louis.”

Mottern, who has raised $175,000 for his company to date through personal funds and private investors, is in the process of raising $2.5 million to support growth and future technology developments. Hey Let’s Train projects $190,000 in revenue in 2014.